Q. I see a lot of deductions on my paystub. How can I tell what they are for?
A. This is a top 10 question I get from my readers. In the interest of saving space or (maybe) laziness, employers and payroll companies often abbreviate deduction names on paystubs. It causes angst for employees trying to decipher what those deduction codes actually are. There are three basic deductions that are on most paystubs.
- Federal income tax – This will often be abbreviated as FIT or Fed. You can change the amount of federal income tax withheld by adjusting the filing status and number of allowances on your Form W-4. This presents a tax planning opportunity for those who get a big refund or who owe a lot of extra dollars at tax return time. Your tax situation is affected by many financial choices you make in life. Those choices are translated into allowances on the Form W-4. Allowances increase (less allowances) or decrease (more allowances) your withholding for federal purposes.
- Social Security – Sometimes this is called SS, FICA, OASDI. It all means the same thing. For 2015, the calculation is 6.2% of taxable wages up to $118,500. The only way to reduce this number is to make less money, or join the company Section 125 cafeteria plan.
- Medicare – Medi, HI are the most common. This is calculated as 1.45% of all taxable wages. There is an additional Medicare tax of .9% that gets added as part of the ACA when Married individuals reach $250,000 of wages and single individuals reach $200,000 of wages.
Other common deductions include:
- State income tax – depending on your state this could look like SIT, or AZIT (in Arizona), or PIT, or state tax. A tax planning opportunity often exists here as well. If your refund/tax owed on your state tax return was very large, you can adjust your state settings by filing a state version of the Form W-4. A complete list is available here.
- Local income taxes – these could be named by the jurisdiction that requires the withholding, or by an acronym developed by that jurisdiction. For example, OLF is the occupational license tax required in Kentucky. Certain jurisdictions call these OPT or OLT. SD could mean school district tax. EIT is a local earned income tax of some sort.
- Non-statutory deductions – Unfortunately, there is no way to name all of these. You could see anything from medical insurance to union dues to charitable deductions to garnishments to child support and retirement plan deductions. You might even see something named “miscellaneous deduction.” I would be fearful if something like that showed up. Anything not specifically required as a tax or fee would be found here. Sometimes these reduce taxable income. Other times, they simply reduce take home pay.
The secret to determining what those deductions mean? Ask your payroll representative. I assure you that if you ask nicely, you will see that the payroll department does not have fangs and it happy to explain things to you. An informed employee is a happy employee!